The new financial year is only a few months away but it will be upon us before we know it! Now is the perfect time to start thinking about how the accounts should look at the end of the year, but also how we want them to look moving forward into 2023/24.
There are some key areas that need to be reviewed now for the year-end itself.
SRA Accounts Rules
These should be looked at all the time, but some areas can get overlooked. Take the time now to check and see if there are any matters which are cause for concern. Look at the matter balance listing for office credit balances, disbursement credit balances, unpaid anticipated disbursements, debit balances on client account and residual client balances.
All these areas should be reviewed continuously, but they can get missed. Take the time now to put anything right before the end of year. More importantly, use the knowledge you have gained about the systems which have led to any breaches to make procedural changes and avoid them happening again.
Law firms are busy places. Often bills are not chased up after they are sent out resulting in long term debtors. Get the debtors reviewed before the end of the year. Ideally the firm needs to have the funds recovered, but also needs to recognise what needs writing off and the reasons why. Then get the debtors chased down where possible and make a list of any write offs that are posted. It will help the firm have an accurate debtor’s figure moving into the new year.
Send a matter listing out to the fee earners and ask them which filed are showing as open when they should be closed. It is important to determine which files are finished, even if they have a balance on. Close the ones that are agreed and are showing a zero balance then investigate the ones that should be closed but have a balance. Often this can be an unpaid bill, or a residual balance that is due back to the client. It is very important to have an accurate live list. It is much better to enter the new financial year accurately than have to resolve these issues afterwards.
The bank reconciliations should be clear every month with minimal transactions showing on the un-reconciled items list. There should also be no missing items. It is important to check that this is the case a few months before the end of year just in case there is that old nagging un-resolved query that is certain to be picked up by the auditors. Also don’t forget to check any suspense accounts that are knocking around!
Nominal Ledgers and Suppliers
Have a run through the nominal accounts for the year. The things to look out for first are mis-postings. See if there are items on the wrong account(s) and then move them accordingly. Also take the time to check if VAT has been applied correctly. Once you’ve done that, if you have a purchase ledger running for your suppliers, go through and see if it is accurate. Sometimes bills are paid but are not marked as so on the purchase ledger, sometimes bills are credited but then not entered. Essentially you need to have the purchase ledger matching the invoices which are actually outstanding. This is important for the end of year.
I also recommend checking that the previous year’s opening balance adjustments from your auditors have been posted and that all accruals and prepayments have been entered, if you are entering them throughout the year. It is also wise to check any salary journals that should have been posted through the year.
Chart of Accounts
This is worth looking through at least once per year. Throughout a firm’s life, accounts are opened to accommodate certain expenditure. Some expenditure is one off, some is long term. Some accounts are only temporary due to agreements ending for example. The older the firm, the more accounts accumulate if unchecked. Have a run-through the chart of accounts and close any redundant nominals. It keeps everything tidier and the trial balance becomes much easier to understand from an auditor’s perspective.
I would also recommend thinking about categorising accounts into something resembling the following:
Cost of Sales
This will help with my next recommendation which is budgeting!
Start preparing next year’s budget in advance. If you do this in the three-month lead up to the end of the financial year, it will ensure that you have finished it in time, rather than playing catch up in the new year! If you have a budget for the current year, use it as an initial basis for your next year. Please ensure that the budget is run through properly before it is committed. Then diarise quarterly budget meetings and check the variances every month. This is very important for business financial stability.
It’s quite a big list, isn’t it? Better to start three months ahead of the end of year than spend three months of the new year catching up!
Alex Simons MAAT
Outsourced Accounts & New Business Manager
The Law Factory LLP